Reference no: EM133294337

A revolution is taking place in the private health sector that could see its hospital activity double in less than 10 years. Ironically, it is the determination of the government and the National Health Service to secure big cuts in waiting times for its own patients that has breathed new life not the industry. But the remarkable shake-up taking place in the private sector is not unalloyed good news for those companies established in the market. Expansion will come at a price as consultants are their fees squeezed and could even threaten some of the main medical insurers' business. William Laing, who for 25 years has been the leading analyst of the private sector and its relationship with the NHS, says: It is the biggest change in the sector that there has ever been and it is a real change if they (the Government) go through with it.

The government's decision to turn the NHS less into a direct provider of services, and more into purchaser of care has big implications for the private hospital groups as overseas providers are brought in to supply waiting list operations and diagnostic procedures. It is also changing in the NHS itself as elective, waiting list care is increasingly separated from more urgent work. NHS consultants, whose rates for private work are the highest in the world, are beginning to see their fees squeezed. And for private patients there is the potential for the cost to fall, at least in real terms, as the government begins to cr eate a genuine market in healthcare supply. In the longer term, however, the market would threaten the business of Bupa, AxaPPP. , Norwich Union, and the other private medical insurers. According to David Mobbs, chief executive of Nuffield Hospitals and Tim Elsigood, chief executive of Capio-two of Britain's big four private hospital suppliers - the market is being transformed by the arrival of the NHS as a bulk purchaser of care from the private sector.

The change has come in two stages. The first was the government's decision to bring in overseas suppliers to compete for chains of fast-track treatment centres to provide 250,000operations a year for NHS patients. When the deals were announced, almost all the preferred bidders came from oversee\as - from South Africa, Canada dn the US - on the grounds of price and innovation. Hone-grown operators, which include Bupa and General Healthcare's BMI hospitals, lost out. The second breakthrough came in last month, when the private sector reacted to the threat tot heir business. Capio, which is Swedish owned and Nuffield won the deal to provide4 25,000 operations this year by offering prices that neither they nor the NHS would disclose in detail. However, John Reid, Health Secretary, said they were 'on par' with equivalent NKS prices' while Capio described them as very, very close to NHS costs.' That compares with the premium of 20% to 46% over NHS costs that the services has been paying for the 60,000 to 80,000 procedures a year that it has bought from UK private hospitals. The competition is starting to make private treatment affordable for the NHS.

Direct comparison of private sector and NHS prices to fraught with difficult, and NHS prices are expected to rise as they become more accurate as a result of being used internally to pay hospitals. But with contracts for a second wave of treatment centres expected to be announced in the summer, by 2008 the private sector looks set to be treating minimum of 600,000 NHS patients a year - approaching a ten-fold increase on the numbers last year. Mr. Reid has said perhaps 15% of NHS operations could be privartely provided - that would amount ot 1 m a year out of the 7 m -plus that the NHS is projected to provide towards the end of the decade. And that figure would match the current total size of the private sector. There is an undoubted irony that it is a Labour government presiding over the biggest expansion in privately provided care since the NHS was founded in 1948. Some doubt it will last. Not all the oversea contracts have been signed. Some provides have been dumped and swapped for others. These are either teething troubles as the NHS seeks the best price going, or a sign of more fundamental problems. Among the sceptics is Charles Auld, chief executive of General Healthcare. Last week he said: "The big question is sustainability"- an issue that worries other private hospital executives.

His company has undertaken significant cardiac work for the NHS but has yet to win one of the big contracts. The treatment centre deals run of r five years. But he queried whether the money would be there to pay for them whn the current period of 7% real terms growth for the NHS ended in 2008. In addition, to achieve the current cuts in waiting times 'the NHS is sprinting. But this is a marathon. And you can't keep sprinting over a marathon'. However, William Laing and Buisson, said that while NHS spending growth might well slow after 2008, growth was bound to continue.

Source: Nicholas Timmins (20004), 'NHS revolution breathes new life into Private Sector' Financial Times May 3.

Questions

1. To what extent do you consider this change to be 'frame breaking' change? Justify your view.

2. In your opinion, which sectors and elements of the environment do you consider to have had the most influence on the decision in the case? Justify your conclusions.

3. From your knowledge and experience, of the NHS and private healthcare providers, analyse the effects that will be felt by doctors, other medical staff and administrators in the NHS and other healthcare providers.

4. What effects, if any, over the longer term might these changes have for patients?